Question 1

Merchandise inventory turnover is calculated by dividing cost of goods sold by the average merchandise inventory.

Accepted Answer

A) True 
 B)False

Question 2

Leverage measures are intended to indicate the extent to which a firm is being financed by debt and the ability of the firm to meet its debt obligations.

Accepted Answer

A) True 
 B)False

Question 3

Match the terms with the definitions.
-The ratio of net income available to common stockholders to the average number of shares of common stock outstanding during the year.

Accepted Answer

A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio 
A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio

Question 4

Dividing the net income for the year by the average number of common shares outstanding during the year (if only common stock is outstanding) is the calculation for the

Accepted Answer

A)  return on stockholders' equity. 
B)  return on assets. 
C)  earnings per share. 
D)  book value per share. 
A)  return on stockholders' equity. 
B)  return on assets. 
C)  earnings per share. 
D)  book value per share.

Question 5

Match the terms with the definitions.
-The ratio of cost of goods sold to the average merchandise inventory.

Accepted Answer

A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover 
A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover

Question 6

Retention of a major portion of business earnings is a desirable way to finance corporate growth.

Accepted Answer

A) True 
 B)False

Question 7

Net income divided by average common stockholders' equity is the calculation for the

Accepted Answer

A)  ratio of net sales to assets. 
B)  return on total assets. 
C)  return on common stockholders' equity. 
D)  earnings per share. 
A)  ratio of net sales to assets. 
B)  return on total assets. 
C)  return on common stockholders' equity. 
D)  earnings per share.

Question 8

Working capital is the excess of a company's current assets over current liabilities.

Accepted Answer

A) True 
 B)False

Question 9

Issuing additional common stock is not a desirable means to finance business growth.

Accepted Answer

A) True 
 B)False

Question 10

An expression of the amount of each item in a statement as a percentage of some designated total for comparative purposes is called vertical analysis.

Accepted Answer

A) True 
 B)False

Question 11

Match the terms with the definitions.
-The ability to earn a satisfactory return on the investments in the business.

Accepted Answer

A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio 
A) accounts receivable turnover 
B) book value per share 
C) working capital 
D) current ratio (working capital ratio) 
E) earnings per share
F)gross profit ratio
G)vertical analysis
H)times interest earned ratio
I)leverage measures
J)return on common stockholders' equity
K)quick ratio (acid-test ratio)
L)profitability
M)operating expense ratio

Question 12

Match the terms with the definitions.
-Measures that indicate a company's ability to meet its current debts as they come due.

Accepted Answer

A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover 
A) profitability measures 
B) operating income ratio 
C) cost of goods sold ratio 
D) ratio of liabilities to stockholders' equity 
E) return on total assets
F)ratio of net sales to assets
G)horizontal analysis
H)leverage
I)net income ratio
J)liquidity
K)liquidity measures
L)merchandise inventory turnover

Question 13

The net income for the year ended was $300,000. Common stockholders' equity at the beginning of the year was $1,400,000 and $1,600,000 at the end of the year. The return on common stockholders' equity would be

Accepted Answer

A)  18.75%. 
B)  20.00%. 
C)  21.43%. 
D)  87.50%. 
A)  18.75%. 
B)  20.00%. 
C)  21.43%. 
D)  87.50%.

Question 14

Dividing the net income for the year by the average assets for the year is the calculation for the

Accepted Answer

A)  return on assets. 
B)  earnings per share. 
C)  book value per share. 
D)  quick or acid-test ratio. 
A)  return on assets. 
B)  earnings per share. 
C)  book value per share. 
D)  quick or acid-test ratio.

Question 15

The net sales for a company were $3,600,000; gross profit was $600,000; and net income was $260,000. The net income to net sales ratio would be

Accepted Answer

A)  7.22%. 
B)  16.67%. 
C)  23.89%. 
D)  43.33%. 
A)  7.22%. 
B)  16.67%. 
C)  23.89%. 
D)  43.33%.

Question 16

Vertical analysis of income statements automatically provides the cost of goods sold ratio and the gross profit ratio.

Accepted Answer

A) True 
 B)False

Question 17

The net income for a company was $315,000 last year and is $270,000 this year. The percent of increase or decrease was

Accepted Answer

A)  16.7%. 
B)  14.3%. 
C)  26.4%. 
D)  86.0%. 
A)  16.7%. 
B)  14.3%. 
C)  26.4%. 
D)  86.0%.

Question 18

The ratio of liabilities to stockholders' equity is a measure of the extent of leverage, or proportion of borrowed capital, with which a business operates.

Accepted Answer

A) True 
 B)False

Question 19

Dividing quick assets by current liabilities is the calculation for the

Accepted Answer

A)  current ratio. 
B)  return on investment. 
C)  acid-test ratio. 
D)  ratio of liabilities to stockholders' equity. 
A)  current ratio. 
B)  return on investment. 
C)  acid-test ratio. 
D)  ratio of liabilities to stockholders' equity.

Question 20

A comparison of the amounts for the same item in financial statements of two or more periods is called

Accepted Answer

A)  vertical analysis. 
B)  competitive analysis. 
C)  earnings per share. 
D)  horizontal analysis. 
A)  vertical analysis. 
B)  competitive analysis. 
C)  earnings per share. 
D)  horizontal analysis.

Exam 24: Analysis of Financial Statements

Merchandise inventory turnover is calculated by dividing cost of goods sold by the average merchandise inventory.

Leverage measures are intended to indicate the extent to which a firm is being financed by debt and the ability of the firm to meet its debt obligations.

Match the terms with the definitions. -The ratio of net income available to common stockholders to the average number of shares of common stock outstanding during the year.

Dividing the net income for the year by the average number of common shares outstanding during the year (if only common stock is outstanding) is the calculation for the

Match the terms with the definitions. -The ratio of cost of goods sold to the average merchandise inventory.

Retention of a major portion of business earnings is a desirable way to finance corporate growth.

Net income divided by average common stockholders' equity is the calculation for the

Working capital is the excess of a company's current assets over current liabilities.

Issuing additional common stock is not a desirable means to finance business growth.

An expression of the amount of each item in a statement as a percentage of some designated total for comparative purposes is called vertical analysis.

Match the terms with the definitions. -The ability to earn a satisfactory return on the investments in the business.

Match the terms with the definitions. -Measures that indicate a company's ability to meet its current debts as they come due.

The net income for the year ended was $300,000. Common stockholders' equity at the beginning of the year was $1,400,000 and $1,600,000 at the end of the year. The return on common stockholders' equity would be

Dividing the net income for the year by the average assets for the year is the calculation for the

The net sales for a company were $3,600,000; gross profit was $600,000; and net income was $260,000. The net income to net sales ratio would be

Vertical analysis of income statements automatically provides the cost of goods sold ratio and the gross profit ratio.

The net income for a company was $315,000 last year and is $270,000 this year. The percent of increase or decrease was

The ratio of liabilities to stockholders' equity is a measure of the extent of leverage, or proportion of borrowed capital, with which a business operates.

Dividing quick assets by current liabilities is the calculation for the

A comparison of the amounts for the same item in financial statements of two or more periods is called

Introduction to Accounting

Analyzing Transactions: the Accounting Equation

The Double-Entry Framework

Journalizing and Posting Transactions

Adjusting Entries and the Work Sheet

Financial Statements and the Closing Process

Accounting for Cash

Payroll Accounting: Employee Earnings and Deductions

Payroll Accounting: Employer Taxes and Reports

Accounting for Sales and Cash Receipts

Accounting for Purchases and Cash Payments

Special Journals

Accounting for Merchandise Inventory

Adjustments and the Work Sheet for a Merchandising Business

Financial Statements and Year-End Accounting for a Merchandising Business

Accounting for Accounts Receivable

Accounting for Notes and Interest

Accounting for Long-Term Assets

Accounting for Partnerships

Corporations: Organization and Capital Stocks

Corporations: Earnings, Taxes, Distributions, and the Retained Earnings Statement

Corporations: Bonds

Statement of Cash Flows

Departmental Accounting

Manufacturing Accounting: The Job Order Cost System

Manufacturing Accounting: The Work Sheet and Financial Statements

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